A zero-sum race for rare earth metals will only set back the shift towards renewable energy

The UN-led COP27 climate conference in Sharm el-Sheikh, Egypt, took place against a backdrop of unprecedentedly high energy prices and looming shortages of certain critical metals vital for scaling up renewable energy, such as copper, cobalt, graphite, lithium, nickel and rare earth metals. Although some of these metals, which are also crucial for hi-tech manufacturing, are known to be abundant globally, the establishment of new mines and mineral extraction is itself a carbon-intensive process. Against this background, countries are faced with the challenge of ensuring energy security amid a green transition, that is, ensuring a reliable energy supply at an affordable cost with minimal environmental impact. The best policy to promote global green energy security would be for all countries – especially the big powers China and the US – to agree to revert to a rules-based multilateral system promoted and safeguarded by the World Trade Organization. In such a scenario, countries would agree to promote global knowledge-sharing around affordable green technologies, sustainable environmental and ethical standards in the mining and processing of green metals, global resource governance, and sharing of geoscience data. Unfortunately, the Ukraine war and heightened US-China tensions appear to have made this option unworkable for the near term. Instead, many countries have woken up to their overreliance on China for critical green metals. China is responsible for 60 per cent of the global production of rare earth metals and dominates the downstream processing stages of several critical minerals mined elsewhere. Concerns over China’s dominance of these critical supply chains have arisen largely because it has leveraged this in the past to further its strategic objectives. For instance, in 2010, Beijing suddenly cut the global supply of rare earth metals exports – which led to a surge in their overall prices – while stopping exports to Japan altogether over a bilateral maritime dispute. More recently, in 2019, China threatened a curtailment of rare earth metals exports as a counter to the US in the trade war. Stating these facts is not meant to place the blame on China for heightened tensions with the US. A parallel can be drawn with the US dollar, as Washington has been known to weaponise the dollar payment system. Neither country is an innocent victim in the great-power blame game. Critical minerals – the next front line in the China-US rivalry? In the case of the clean energy transition, given the growing geopolitical risks, many countries have chosen to reduce their metals import dependency on China by diversifying supply chains to ensure greater energy resilience. For instance, after the shock of the curtailment of rare earth metals imports from China in 2010, Japan worked with Australia and Vietnam to improve the extraction and processing of these metals. Other countries have also begun to undertake energy security policies such as strengthening domestic supplies of certain critical metals and materials, and offering generous subsidies to promote alternative renewables as part of ambitious new green deals. The most notable example is the passing of the Inflation Reduction Act by the US in August, which promises substantial subsidies and credit to the private sector for the development of clean energy industries. The concern with such unilateral strategies is the inefficiency associated with competitive subsidies to make domestic production more attractive. Such beggar-thy-neighbour subsidy policies also fuel accusations of unfair trade practices and could prompt retaliation from other countries. This is not just an abstract possibility. The EU, Japan and South Korea have complained publicly about the discriminatory effects of the Inflation Reduction Act hindering the development of green technologies in other countries. In addition, the US and other countries have realised that no country is likely to develop self-sufficiency in renewables at the scale needed. Short of global cooperation, the world is likely to see more regional cooperation and “friend-shoring”, that is, a strengthening of alliances and partnerships with like-minded countries to pool resources and secure reliable and affordable low-carbon energy supplies. How ‘friendshoring’ helps US shift supply chains away from China For instance, in May, the US-led Indo-Pacific Economic Framework was established to engage on important economic and trade matters, including “sustainable finance for low- and zero-emissions projects”. Likewise, in June, the US announced the Minerals Security Partnership with 10 other advanced economies including Japan and South Korea. This scenario of a decoupling of supply chains – with China on one hand, and the US and its allies on the other – may not be a bad outcome in and of itself. It could enhance energy security for other countries by providing multiple sources of renewables and also if it raises the global supply of these metals. However, in a world of bifurcated energy supply chains, if environmental, social and governance (ESG) standards vary considerably, with lax environmental regulations in some countries, this could give rise to further tensions and accusations of unfair practices. Amid this ongoing global resource battle, there are many concerns as we for a shift in dependency from fossil fuels to green metals and minerals. Thus, countries should pursue their growth strategies in such a way as to reduce their planetary footprint by taking energy efficiency, circularity and recycling much more seriously. Ramkishen S. Rajan is Yong Pung How Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore Bhavya Gupta is a PhD candidate at the Lee Kuan Yew School of Public Policy, National University of Singapore, and a Fox International Fellow at Yale University